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Monday, September 9, 2013

Brace for mortgage renewal time.


Fixed rates nudge up yet again – - – although still well below historical norms, fixed rate mortgages continue to rise, slowly but surely. They have gone up 5 times in the past 3 months.  Many borrowers are still enjoying variable rate mortgages at 2.25% or prime less 75 basis points, some even lower. What’s going to happen when these mortgages come up for renewal?
Let’s assume your mortgage was done 5 years ago with a 35 year amortization. Further, let’s assume you went with a variable mortgage rate at 2.25% – - what a great choice you made! The renewal date on your mortgage is October 1st, and there is $300,000 outstanding. Your current mortgage payment for the past 5 years has been $1031.06 monthly. And finally, let’s assume that this time, you decide to go with a fixed rate mortgage at current rates today – - your monthly payment will increase to $1512.10! – - an increase of almost $500 amonth.
    Let's say you  decide to stay with a variable rate mortgage. The best discounted rates today are prime minus .40 or 2.60%- your monthly payments will still rise to $1250. Here's something else you should be aware of. The mortgage rules have changed in the past 5 years. If you alter your mortgage amount in any way, you do not get the 35 or 40 year mortgage amortization you had 5 years ago. It will drop to 25 years which will increase your monthly payments.
 Can your budget absorb this increase? It is especially important for you to contact a mortgage broker before renewing as you may not be aware of these changes and a broker's impartial advice can and will save you money. For more information visit David's website at http://davidcooke.ca

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